Abstract
We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.
| Original language | English |
|---|---|
| Pages (from-to) | 85-91 |
| Number of pages | 7 |
| Journal | Mathematical Finance |
| Volume | 8 |
| Issue number | 1 |
| DOIs | |
| State | Published - 1 Jan 1998 |
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Keywords
- Ergodicity
- Incomplete markets
- Long bond returns
- Markov process
- State prices
Cite this
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Ergodicity, state prices, and long bond returns. / Tessitore, Anthony; Usmen, Nilufer.
In: Mathematical Finance, Vol. 8, No. 1, 01.01.1998, p. 85-91.Research output: Contribution to journal › Article › Research › peer-review
TY - JOUR
T1 - Ergodicity, state prices, and long bond returns
AU - Tessitore, Anthony
AU - Usmen, Nilufer
PY - 1998/1/1
Y1 - 1998/1/1
N2 - We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.
AB - We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.
KW - Ergodicity
KW - Incomplete markets
KW - Long bond returns
KW - Markov process
KW - State prices
UR - http://www.scopus.com/inward/record.url?scp=0032221567&partnerID=8YFLogxK
U2 - 10.1111/1467-9965.00046
DO - 10.1111/1467-9965.00046
M3 - Article
VL - 8
SP - 85
EP - 91
JO - Mathematical Finance
JF - Mathematical Finance
SN - 0960-1627
IS - 1
ER -